idea #9 Corinthian Colleges (COCO)

Coco was written up on VIC.  Private colleges have been written up many times.  They are controversial because of how heavily they are regulated and their tenuous relationship with regulators who determine their funding. 

Private colleges are incentivized by the government to create academic programs that result in their graduates getting jobs.  Their continued funding is contingent on graduates repaying loans. 

In that sense, a private college's business is to figure out what industries will be hiring in the future (where there are "needs"), create a curriculum to address those needs, recruit students who will want to fill those jobs, teach them how to do the job, help them get the job, and make sure the students repay their government loans. So long as most of the students repay their loans, the private college can stay in business, as more students will be able to borrow to attend. 

They are suffering because some students aren't repaying loans and some of their schools are at risk of losing the ability to receive government loan money.  Coco is the parent company.  They have hundreds of independent schools that must each qualify.

These days, it seems the government's sole purpose is to keep people working.  It's hard to imagine a more efficient way of stimulating job growth than by loaning money to students to help them become more employable.

So, you have private schools who recruit, train and place workers wherever there are job opportunities.  Ironically, their stock is suffering because of worry over funding, which is a result of past students being unemployed, which is a result of high unemployment.  And you have the federal government, who's politicians want to get re-elected and want more employed people paying taxes.  Policians are also suffering because of high unemployment.  Are the regulators really going to cut funding for a program that could directly effect unemployment? 

Positive Attributes:
-counter cyclical business
-Royce owns it
-insider buys
-attractive current valuation
-heavily shorted, short story is well-known
-shows up on some AAII screens.

negatives:
- used growth by acquisition strategy.  Put on hold in 2005, recently made an acquisition
- The funding lag from federal dollars.  If they trained a lot of graduates who are now not paying their loans back (because of high unemployment) they will lose accredidation and not be able to borrow from the federal government.
Unemployment is the cause for their current woes, but unemployment is also the incentive for fixing their woes.  Unless they are failing to teach correctly, or allocate human capital correctly.
- no doubt analysts who are more hooked into this are seeing less enrollment.  VIC argues that coco is most sensitive to title IV funding.